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May 14, 2007

"Emerging markets PE to fetch 5.4% higher returns over US buyouts": LP Survey

The Emerging Markets Private Equity Association has released the exectuive summary of its 2007 Survey of Limited Partner Interest.

Some highlights of the survey's findings:

• 52% of LPs said that returns from their current emerging markets commitments met or surpassed expectations, a dramatic change from the 25% of LPs who thought similarly in EMPEA’s 2006 Survey. In 2007, only 15% thought returns fell short of expectations, versus 42% who reported such disappointment in 2006.

• LPs expect their current emerging market commitments to produce returns of 22.6%, on average—a 5.4% premium over the 17.2% return expected from their U.S. buyout commitments. 63% of LPs said emerging markets private equity funds would still be delivering substantially higher returns than developed markets in five years’ time.

• 78% of LPs surveyed in 2007 expect that emerging markets will grow as a percentage of their private equity commitments over the next 3–5 years, versus 65% of respondents in 2006, and only 45% in 2004.

• LPs indicated plans to ramp up investments across all emerging markets over the next 5 years. Asia and Central and Eastern Europe/Russia are the destination markets of greatest interest over the medium term, with 89% of LPs expecting to invest in Asia by 2012, and 87% in CEE/Russia by 2012.

• Of LPs with no experience in these regions, the Survey found that 70% planned to invest in Asia by 2012. LPs also think that within Asia, China and India will continue to dominate. 62% agreed or strongly agreed that these two markets would dominate emerging markets private equity in 5 years’ time.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.